How Is Loss of Income Calculated in a Personal Injury Case If I Am Self Employed?

Wooden gavel laying on American dollars

April 19, 2017

Ellis Law Corporation

Personal Injury

Plaintiffs file personal injury lawsuits in order to obtain compensation for their economic losses. For most people, the calculation for “loss of income” is fairly straightforward – based on wage statement and tax return data. A business owner or self-employed worker faces a more difficult path to proving what has been lost as a result of the accident injuries.

What counts as “lost income” for a self-employed plaintiff?

As a self-employed professional, you are entitled to recover:

  • Lost income – How much time did you have to take off your usual workload?
  • Loss of earning capacity – Did you lose skills and abilities for a time after your injury?
  • Lost profits – Did you lose current business as a result of your injuries?
  • Lost business opportunities – Did you lose pending business opportunities due to injury?
  • Loss of good will – Has your loss of availability hurt your relationships with current/future clients?
  • Sick leave and vacation pay – What sick and vacation pay would you have accumulated?

What proof do you need to prove self-employed losses?

Several years’ worth of tax returns is the preferred documentation. However, there are myriad reasons why you may not want to hand these documents over to the courts. They contain personal information such as spouse income, investments, charitable donations, and other sensitive data. Though these returns are confidential in the hands of the IRS, the courts waive this confidentiality once they appear in court. California law (Tax.C. §§ 19542, 7056) protects citizens from having to turn over their tax forms over the course of discovery and litigation.

Other sources to establish claim to income losses may include:

  • A letter from a client, customer, vendor, or business associate verifying your name, position, rate of pay, number of hours typically worked, and amount of time missed after the accident.
  • Letters from lost associates, verifying that the accident and injuries sustained prevented associates from doing business with you.
  • Bills of sale, invoices, appointment calendars, documentation of meetings and conferences, and payments received leading up to the accident can be used to show how much you were working and earning.

Additional considerations in calculating loss of income

The courts often pursue the following questions in their assessment of loss:

  • What type of business is it?
  • What type of person is the claimant?
  • Can a replacement manager be hired to maintain the business?
  • What portion of earnings are attributable to labor, and what portion is investment income returns?

In some cases, damages are calculated based on the cost of hiring a replacement, rather than an estimation of lost business profits – which can be very difficult to prove beyond a questionable doubt.

Who can help build a strong loss of income case?

Los Angeles personal injury attorneys at The Ellis Firm regularly rely upon a number of professionals to help build a strong case for our clients’ losses. Economic experts can testify on your vocational abilities, the market for your skills, and provide a reasonable estimate of loss based on tangible factors. Forensic accountants can study your past income and prepare a detailed report regarding your future income based on growth rate projections for your type of business and by scaling up the estimation of added customers. They can provide a glimpse into what your competitors were able to achieve to make a compelling case.

Contact California lawyers at The Ellis Firm for a free case review. We have experience obtaining maximum compensation for self-employed plaintiffs.

Additional “loss of self-employed income” resources: